When it comes to the level of U.S. government debt, I hope all of our subscribers pay attention to one key statistic: the amount of the government's revenues that must go towards paying interest. As everyone who has ever paid a mortgage knows, carrying debts can become prohibitively expensive. My concern is the U.S. already has more debt than it can afford, which puts it at an enormous risk of a debt and currency collapse. While I wish I were wrong, I've learned that when it comes to finance, the numbers rarely lie. ... The big problem we face right now is the Treasury has moved more than half of our total debt into the very short end of the yield curve. It did this to minimize interest expense. But as a result, we'll have to "roll over" roughly $4 trillion in the next 30 months. That's in addition to funding another $3 trillion or so in additional annual deficits. It's an interesting question, whether or not we can actually do this. We cannot do it if China stops buying massive quantities of Treasury bonds. And as of today, China is a net seller of Treasury debt. If we can't fund our debts in the bond market, the Federal Reserve will be forced to monetize our deficits by buying Treasury bonds. If that happens, inflation will soar and the price of gold will double or triple almost overnight. The bigger problem, over the long term, is simply debt service. Right now, the federal government takes in roughly $1 trillion in income taxes and a much smaller amount of money in other fees, duties, etc. (The government takes in another $1 trillion from Social Security and Medicare taxes, but it spends more currently on these programs than it takes in. So as a result, this revenue can't factor into our analysis of debt service.) At the end of 2009, the federal government had $11.8 trillion in total outstanding debt. That's the official number. Likewise, officially, the interest we paid last year made up 11% of the government's revenues – but that measure included all of the social insurance premiums as tax. More importantly, the current budget doesn't include a number of highly significant obligations that are actually the government's responsibility, but are held "off balance sheet." ... By the end of OBAMA!'s first presidency (2013), I believe the U.S. will owe roughly: $17.8 trillion in federal debt, $2 trillion in GSE debt/guarantees, $500 billion in FDIC obligations, and $500 billion in FHA obligations. My only big assumption is $1.5 trillion in additional deficits each year, which is what the president's budget also predicts. Please keep in mind... These obligations aren't future promises to pay. This isn't Medicare spending projected out until 2040. These are all obligations that either have known maturities or will come due in the next two or three years. There isn't much guessing about the magnitude of any of these obligations.What's a reasonable rate of interest on these debts? Right now, it costs the U.S. government almost 5% to borrow for 30 years. Let's assume the blended borrowing cost goes to that amount – which is well below the government's average borrowing costs since 1980. That would equal $1 trillion in interest payments due, per year. That's 100% of all income taxes paid in 2009. I hope I don't have to explain to you why this amount of debt isn't sustainable. I'm not the only person in the world who can do basic math and has access to the government's accounts. Says Felix Zulauf, one of Europe's top money managers, "Eventually the U.S. will arrive at the point where, as Marc Faber says, interest payments on government debt all of a sudden go to 20%, 25%, 30% of tax revenue. And once you go above 30%, you are done. You go into default or your currency breaks down and your system collapses." Or perhaps you will recognize this name: Alan Greenspan. He says, there has always been "a large buffer between the level of our federal debt and our capacity to borrow," but that's disappearing now. "I'm finding it very difficult to look into the future and not worry about that." Obviously, I can't know for certain what will happen to the U.S. dollar over the next three years. It is certainly possible for our economy to grow fast enough to support our soaring federal debt. The problem is, that's unlikely. Meanwhile, the growth of our debt and interest expenses is a mathematical certainty. No one else is going to give you this stern of a warning. They're afraid they'll be wrong and end up being embarrassed. I'm not worried about that. I'd love to be wrong. I would much prefer to be embarrassed than to see my country's economic power destroyed and millions of people wiped out financially. So just look at the numbers. If I'm wrong about any of them, let me know. Otherwise, please... act now to protect yourself. If you wait until the last minute to get your assets out of the U.S., you'll never make it.

Rogers: The Euro Is Headed for ExtinctionMonday, 22 Mar 2010 08:50 AMBy: Dan WeilThe European debt crisis sounds the beginning of the death knell for the euro, says investment icon Jim Rogers."The euro will probably break up in the next 15 to 20 years," he says. "We've had currency unions in history. They didn't survive, and this one won't survive either," he recently told told CNBC. Greece suffers from a budget deficit that totals 12.7 percent of GDP, and public debt that is forecast to exceed 120 percent of GDP this year. So the European Union has pledged assistance."If (the euro zone helps) the Greeks, that weakens the fundamentals of the euro," Rogers said."As the next government comes to demand concessions, they weaken the currency from within. I would let Greece go bankrupt, because then everybody will say the euro is a serious currency." The British pound is in trouble too, though it’s not in danger of disappearing like the euro, Rogers says. The United Kingdom’s main problems are “gigantic debt and a huge trade deficit," he explained.Indeed, the entire developed world has currencies that are in danger of falling, Rogers says. "Most Western currencies, most currencies everywhere are very suspect." Rogers also sees Chinese real estate and U.S. Treasuries as the two bubbles brewing for global investors now.Others are concerned about the euro too.Harvard economist Martin Feldstein says Greece is in a real pickle. “The alternatives are to default in some way or to leave (the euro), or both,” he told Bloomberg.

There was a time when the pen was mightier than the sword. That was a time when people believed in truth and regarded truth as an independent power and not as an auxiliary for government, class, race, ideological, personal, or financial interest.

Today Americans are ruled by propaganda. Americans have little regard for truth, little access to it, and little ability to recognize it.

Truth is an unwelcome entity. It is disturbing. It is off limits. Those who speak it run the risk of being branded “anti-American,” “anti-semite” or “conspiracy theorist.”

Truth is an inconvenience for government and for the interest groups whose campaign contributions control government.

Truth is an inconvenience for prosecutors who want convictions, not the discovery of innocence or guilt.

Truth is inconvenient for ideologues.

Today many whose goal once was the discovery of truth are now paid handsomely to hide it. “Free market economists” are paid to sell offshoring to the American people. High-productivity, high value-added American jobs are denigrated as dirty, old industrial jobs. Relicts from long ago, we are best shed of them. Their place has been taken by “the New Economy,” a mythical economy that allegedly consists of high-tech white collar jobs in which Americans innovate and finance activities that occur offshore. All Americans need in order to participate in this “new economy” are finance degrees from Ivy League universities, and then they will work on Wall Street at million dollar jobs.

Economists who were once respectable took money to contribute to this myth of “the New Economy.”

And not only economists sell their souls for filthy lucre. Recently we have had reports of medical doctors who, for money, have published in peer-reviewed journals concocted “studies” that hype this or that new medicine produced by pharmaceutical companies that paid for the “studies.”

The Council of Europe is investigating the drug companies’ role in hyping a false swine flu pandemic in order to gain billions of dollars in sales of the vaccine.

The media helped the US military hype its recent Marja offensive in Afghanistan, describing Marja as a city of 80,000 under Taliban control. It turns out that Marja is not urban but a collection of village farms.

And there is the global warming scandal, in which NGOs. the UN, and the nuclear industry colluded in concocting a doomsday scenario in order to create profit in pollution.

Wherever one looks, truth has fallen to money.

Wherever money is insufficient to bury the truth, ignorance, propaganda, and short memories finish the job.

I remember when, following CIA director William Colby’s testimony before the Church Committee in the mid-1970s, presidents Gerald Ford and Ronald Reagan issued executive orders preventing the CIA and U.S. black-op groups from assassinating foreign leaders. In 2010 the US Congress was told by Dennis Blair, head of national intelligence, that the US now assassinates its own citizens in addition to foreign leaders.

When Blair told the House Intelligence Committee that US citizens no longer needed to be arrested, charged, tried, and convicted of a capital crime, just murdered on suspicion alone of being a “threat,” he wasn’t impeached. No investigation pursued. Nothing happened. There was no Church Committee. In the mid-1970s the CIA got into trouble for plots to kill Castro. Today it is American citizens who are on the hit list. Whatever objections there might be don’t carry any weight. No one in government is in any trouble over the assassination of U.S. citizens by the U.S. government.

As an economist, I am astonished that the American economics profession has no awareness whatsoever that the U.S. economy has been destroyed by the offshoring of U.S. GDP to overseas countries. U.S. corporations, in pursuit of absolute advantage or lowest labor costs and maximum CEO “performance bonuses,” have moved the production of goods and services marketed to Americans to China, India, and elsewhere abroad. When I read economists describe offshoring as free trade based on comparative advantage, I realize that there is no intelligence or integrity in the American economics profession.

Intelligence and integrity have been purchased by money. The transnational or global U.S. corporations pay multi-million dollar compensation packages to top managers, who achieve these “performance awards” by replacing U.S. labor with foreign labor. While Washington worries about “the Muslim threat,” Wall Street, U.S. corporations and “free market” shills destroy the U.S. economy and the prospects of tens of millions of Americans.

Americans, or most of them, have proved to be putty in the hands of the police state.

Americans have bought into the government’s claim that security requires the suspension of civil liberties and accountable government. Astonishingly, Americans, or most of them, believe that civil liberties, such as habeas corpus and due process, protect “terrorists,” and not themselves. Many also believe that the Constitution is a tired old document that prevents government from exercising the kind of police state powers necessary to keep Americans safe and free.

Most Americans are unlikely to hear from anyone who would tell them any different.

I was associate editor and columnist for the Wall Street Journal. I was Business Week’s first outside columnist, a position I held for 15 years. I was columnist for a decade for Scripps Howard News Service, carried in 300 newspapers. I was a columnist for the Washington Times and for newspapers in France and Italy and for a magazine in Germany. I was a contributor to the New York Times and a regular feature in the Los Angeles Times. Today I cannot publish in, or appear on, the American “mainstream media.”

For the last six years I have been banned from the “mainstream media.” My last column in the New York Times appeared in January, 2004, coauthored with Democratic U.S. Senator Charles Schumer representing New York. We addressed the offshoring of U.S. jobs. Our op-ed article produced a conference at the Brookings Institution in Washington, D.C. and live coverage by C-Span. A debate was launched. No such thing could happen today.

For years I was a mainstay at the Washington Times, producing credibility for the Moony newspaper as a Business Week columnist, former Wall Street Journal editor, and former Assistant Secretary of the U.S. Treasury. But when I began criticizing Bush’s wars of aggression, the order came down to Mary Lou Forbes to cancel my column.

The American corporate media does not serve the truth. It serves the government and the interest groups that empower the government.

America’s fate was sealed when the public and the anti-war movement bought the government’s 9/11 conspiracy theory. The government’s account of 9/11 is contradicted by much evidence. Nevertheless, this defining event of our time, which has launched the US on interminable wars of aggression and a domestic police state, is a taboo topic for investigation in the media. It is pointless to complain of war and a police state when one accepts the premise upon which they are based.

These trillion dollar wars have created financing problems for Washington’s deficits and threaten the U.S. dollar’s role as world reserve currency. The wars and the pressure that the budget deficits put on the dollar’s value have put Social Security and Medicare on the chopping block. Former Goldman Sachs chairman and U.S. Treasury Secretary Hank Paulson is after these protections for the elderly. Fed chairman Bernanke is also after them. The Republicans are after them as well. These protections are called “entitlements” as if they are some sort of welfare that people have not paid for in payroll taxes all their working lives.

With over 21 per cent unemployment as measured by the methodology of 1980, with American jobs, GDP, and technology having been given to China and India, with war being Washington’s greatest commitment, with the dollar over-burdened with debt, with civil liberty sacrificed to the “war on terror,” the liberty and prosperity of the American people have been thrown into the trash bin of history.

The militarism of the U.S. and Israeli states, and Wall Street and corporate greed, will now run their course. As the pen is censored and its might extinguished, I am signing off.

The world's oil reserves have been exaggerated by up to a third, according to Sir David King, the Government's former chief scientist, who has warned of shortages and price spikes within years.The scientist and researchers from Oxford University argue that official figures are inflated because member countries of the oil cartel, OPEC, over-reported reserves in the 1980s when competing for global market share. Their new research argues that estimates of conventional reserves should be downgraded from 1,150bn to 1,350bn barrels to between 850bn and 900bn barrels and claims that demand may outstrip supply as early as 2014. The researchers claim it is an open secret that OPEC is likely to have inflated its reserves, but that the International Energy Agency (IEA), BP, the Energy Information Administration and World Oil do not take this into account in their statistics.

March 29, 2010Obama-Reid-Pelosi-Care is now the law of the land. Most people hate it. Clearly Americans are frightened and angry about this socialist nightmare Congress and the president have forced upon the nation in the name of "health care reform." All Congressional Republicans voted against it. Unlike any other entitlement ever passed by the United States Congress, it is entirely partisan. Barack Obama and the Democrats own it.You say you're not yet frightened or angry? Then perhaps you don't understand that the bill will provide health care for illegal aliens, or that yours will be rationed. Those of you who believe that the federal government will now be paying for your health care should know that, in fact, health insurance will necessarily be more expensive, and that you will face fines if you don't buy it.Maybe you are unaware that the federal government will have direct access to your bank accounts for elective funds transfer, and access to your medical records for whatever purpose they see fit.It might surprise you to learn that under this legislation no company can sue the government for price fixing, and that there will be no judicial review against a government monopoly. It may not bother you that government will now be able to dictate the salary of physicians. Did you know that the feds will set the value of a doctor's time, or that all physicians, regardless of specialty, will be paid the same?Did you realize that government will restrict the treatment of "special needs people"? Or that some bureaucrat will now mandate a program for orders on "end-of-life"? Or that an "advanced care consultation" may include an order for end-of-life plans? Or that government will specify which doctors can write an end-of-life order? Can you say "death panels"?These are just a few of the outrageous provisions in the "historic" legislation of which Democrats are so proud. But if you needed further proof that the inmates are now running the asylum, the U.S. Senate provided it in spades last week. It seems that in the rush to pass something -- anything -- that Obama could label "health care reform," no one thought to consider the unintended consequences of government funded prescription drugs for the "poor." Thus, the bill forces taxpayers to pay for Viagra and other erectile dysfunction drugs for -- are you sitting down? -- sex offenders!U.S. Sen. Tom Coburn, a conservative physician from Oklahoma, offered an amendment to the reconciliation bill to remove this provision. Coburn's full amendment reads as follows: "This amendment would enact recommendations from the Government Accountability Office to stop fraudulent payments for prescription drugs prescribed by dead providers or, to dead patients. This amendment also prohibits coverage of Viagra and other ED medications to convicted child molesters, rapists, and sex offenders, and prohibits coverage of abortion drugs."Montana Democrat Sen. Max Baucus, one of the original architects of this monstrosity, called Coburn's amendment "a crass political stunt." By a vote of 57-42, Democrats rejected the amendment.Thomas Jefferson once said, "To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical." Other than taxpayer funded abortion (which is also in the bill), there could be no clearer example of Jefferson's lament than this one. You will go to work tomorrow and earn your pay. Your employer will withhold an obscene amount of federal taxes from your check, leaving you to struggle to support your family and try to make ends meet on what is left. The feds will then take a portion of your hard-earned tax money and spend it to help criminal sexual deviants perform better while they are raping little boys and girls! How do these people sleep at night?The Congress stands for election in seven months. Do not forget this one.

The Rally Nears It's End30 March 2010When it comes to equity analysts Teun DraaismaTeun Draaisma is a must-read. The European equity analyst famously called for investors to sell stocks in June 2007 when the markets were flashing a “full house sell” signal. He then flipped bullish in November of 2008 as the markets were pricing in a much more severe situation than Draaisma saw unfolding. He’s one of the few investors who actually got the downturn and the upturn correct and was able to connect the dots between cause and effect. In his latest strategy note Draaisma is saying the rally has gotten ahead of itself and that we’re due to for a correction as good news becomes bad news. In addition to being bearish about 2010, Draaisma says the better than expected growth in the near-term is putting more pressure on the Fed to raise rates and will lead to tightening measures sooner than most investors suspect:“The rally since 5-February is nearing its end, we believe. Our thesis is that good growth will lead to tightening measures and struggling equity markets this year, just like in 1994 and 2004. The recent rally was larger than we expected, and in our eyes was due to:1) there have been no positive payrolls or Fed language change yet (we even saw some loosening rather than tighteningmeasures last week, with the Greek bailout, the ECB keeping its wide collateral pool for longer and the Obama plan for troubledmortgage borrowers).2) sentiment had turned quite cautious in early February. Nevertheless, we do think the market peak associated with the start of tightening is near, and expect 2010 to show a volatile whipsaw pattern in equities. We expect good payrolls (April 2) and a Fed language change (April 30), some leading indicators are rolling over from multi-decade peaks (ECRIECRI leading indicator for the US, OECD leading indicator for the world), and some sentiment surveys have turned more bullish.”Draaisma believes the market will decline 11% in the next 3-6 months:“The 3-6 month outlook: tactical caution. The last 12 months have been characterised by record stimulus and rising economic leading indicators. We think the next 6 months will be characterised by some stimulus withdrawal (as a reaction to good growth in Asia and US), and softening leading indicators. We reduced our equity exposure two months ago. We recommend selling into strength, and we think MSCI Europe will reach 1030 at some point later in 2010, down 11% from here.”On a longer time horizon Draaisma says the markets remain entangled in a bear market and that investors should not be fooled by the cyclical bull within a secular bear:“The multi-year outlook: the secular bear market that started in 2000 is not yet complete (pages 11-13). We believe the secular bear market is incomplete for a variety of reasons, including that banking crises and bailouts tend to precede debt crises; that the amount of debt has not been reduced yet (it only changed hands to the government); that equity valuations never reached end of bear market levels; and our historical analysis that equities tend to struggle for longer in the aftermath of secular bear markets. When the next earnings recession hits, perhaps in 2012, we expect equities to complete the bear market that started in 2000.”Draaisma’s outlook isn’t exactly consensus, but then again, it never really has been. And that makes his research a breath of fresh air on Wall Street.

In the world of technical analysis, price action is king. I'm bearish. Everything in my heart, my soul, and my mind tells me I have to be short the stock market. But I've avoided making large downside bets because the price action – the king – has been so persistently positive.The peasants, however, are not very enamored of his royal highness. Volume is weak. Negative divergences exist on nearly every momentum indicator. Sentiment indicators show remarkable investor complacency. And the world news is highly negative. Yet, the king continues to reign. But here's the thing...When kingdoms are overthrown, it happens overnight. It's an instantaneous transition of power. One day, the king is in charge, the next day it's a religious zealot, a military general, or a drug kingpin. It always comes off as a surprise. But in hindsight, there are always plenty of warning signs.Think back to the Bolshevik Revolution. The Russian royal family was slaughtered overnight, but the peasants were unruly for months beforehand.The CIA was aware of turbulence in the Middle East long before the Shah of Iran was exiled in 1979.The Berlin Wall collapsed overnight. But the blueprints for its destruction were drawn out months ahead of time.In hindsight, all of these events were predictable and foreseeable.The same is true of the stock market crash in 1987... Economic conditions were faltering. Interest rates were rising. The public's appetite for risk was growing. And stocks were rallying on the back of deteriorating technical conditions.Anyone, with even the simplest understanding of market conditions, could have called the crash in 1987. In fact, many of the brightest analysts did. But they were early and their reputations suffered as stocks continued to climb despite the overwhelming technical divergences.I remember 1987 well. I was a young trader, and I was on the wrong side of the market for five months before my bearish bets finally paid off. In August 1987, I was so perplexed by the market's action I considered leaving my trading post and pursuing another career. Heck, standing behind the plexiglas booth at the local gas station and putting $10 on pump number 5 was a more attractive career path than what I was doing at the time.When it finally happened that October, the crash of 1987 took almost everyone by surprise, and it seemed to happen overnight. By now, though, we all know the warning signs were everywhere. So, too, were the warning signs when the Internet craze crashed and burned in 2000.Today isn't any different.I know, I've been bearish for months and I've been wrong – even though I haven't bet heavily in that direction. I'll wear the egg on my face for as long as necessary.Every day, I wake up and I look for reasons to be bullish on the market. There aren't any – except the king remains in power. Meanwhile, the peasants grow more and more restless, and the tension continues to build.

Months from now, we'll all look back at this time – much as we all look back at October 1987 and March 2000 – and we'll remark on how obvious it all was.Yet we'll be surprised that it happened out of nowhere.Best regards and good trading, Jeff Clark

Healthcare and Economic RealitiesWith passage of last week’s bill, the American people are now the unhappy recipients of Washington’s disastrous prescription for healthcare “reform.” Congressional leaders relied on highly dubious budget predictions, faulty market assumptions, and outright fantasy to convince a slim majority that this major expansion of government somehow will reduce federal spending. This legislation is just the next step towards universal, single payer healthcare, which many see as a human right. Of course, this “right” must be produced by the labor of other people, meaning theft and coercion by government is necessary to produce and distribute it.Those who understand Austrian economic theory know that this new model of healthcare will cause major problems down the road, as it has in every nation that ignores economic realities. The more government involves itself in medicine, the worse healthcare will get: quality of care will diminish as the system struggles to contain rising costs, while shortages and long waiting times for treatment will become more and more commonplace.Consider what would happen if car insurance worked the way health insurance does. What if it was determined that gasoline was a right, and should be covered by your car insurance policy? Perhaps every gas station would have to hire a small army of bureaucrats to file reimbursement claims to insurance companies for every tank of gas sold! What would that kind of system do to the costs of running a gas station? How would that affect the prices of both gasoline and car insurance? Yet this is exactly the type of system Congress is now expanding in health insurance. In a free market system, health insurance would serve as true insurance against serious injuries or illness, not as a convoluted system of third party payments for routine doctor visits and every minor illness.While proponents of this reform continue to defy all logic and reason by claiming it will save money, I worry about cataclysmic economic events. Already investors are more reluctant to buy US Treasuries, fearing that the healthcare bill, along with other spending, will cause government debt to explode to default levels. I had the opportunity last week to address my concerns with both Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, especially about the potential for the coming serious inflation. I am not optimistic that these important decision makers truly understand what is coming, why it is coming, and how best to deal with it.The Federal Reserve finds itself in an unprecedented and unenviable position. To keep up with government spending and corporate irresponsibility, it has increased the monetary base by nearly $1.5 trillion since September of 2008. Excess bank reserves remain at historically high levels, and the Fed's balance sheet has ballooned to over $2 trillion. If the Fed pulls this excess liquidity out of the system, it risks collapsing banks that rely on the newly created money. However, if the Fed fails to pull this excess liquidity out of the system we risk tipping into hyperinflation. This is where central banking inevitably has led us.The idea that a handful of brilliant minds can somehow steer an economy is fatal to economic growth and stability. The Soviet Union's economy failed because of its central economic planning, and the U.S. economy will suffer the same fate if we continue down the path toward more centralized control. We need to bring back sound money and free markets- yes, even in healthcare- if we hope to soften the economic blows coming our way.

THE 7 BIGGEST RISKS IN APRIL30 March 2010As we enter a new month (and a new quarter) our Sound Of cannons Editors point out the mounting risks to equities as investors begin to price in very optimistic outcomes after a 70% rally in stocks. Attached are 7 near-term risks to the market:1) Last week’s bond auctions did not go well. It seems that Japan and China did not show much interest. The lack of bids was no better underscored than in the 7-year Treasury note auction where the median yield was 3.29% versus 3.05% a month earlier. April is a cruel month for the U.S. Treasury market, with 10-year yields rising in each of the past 4 Aprils and in 6 of the past 7, and by an average of 25 basis points. (As Alan Greenspan said on Bloomberg News last week, higher yields are “the canary in the mine”.)2) That, in turn, could spook the equity market since another 25bps of upside pressure could then generate a fund-flow spiral as was the case in the summer of 2007 — 3.85% (where we are now) ostensibly is a trigger point for selling of mortgage bonds. As rates rise, homeowners are less likely to pay their mortgages early, which extends the life of the mortgage and that in turn encourages mortgage investors to neutralize the duration of their portfolios by selling T-bonds and notes. We have seen this happen before and while it will likely provide a nice buying opportunity given the deflationary headwinds the economy now faces, the prospect of a spasm in the Treasury market is worth considering. Every equity market correction in the past — 1987, 1994, 1998, 2000, and 2007 — was preceded by what turned out to be a brief but significant runup in yields. And, the more overvalued the equity market is, the more the downside risks if bonds begin to provide greater yield competition in the near-term. Jeffery Hirsch over at the Stock Trader’s Almanac is in today’s NYT predicting a 20-30% correction ahead. he notes the modest number of stocks hitting new 52-week highs with every new interim peak being reached by the overall market.3) The leading indicators are all pointing to a slowdown, and this could show up in a critical data-release week in mid-April with retail sales on the 14th, industrial production on the 15th, and housing starts, as well as consumer sentiment, on the 16th. The broad moneybroad money supply measures are contracting again as the Fed is no longer boosting its balance sheet at a time when both the money multiplier and money velocitymoney velocity are showing no signs of turning higher.4) Greece will be put to the test in April when €15 billion of bonds have to be rolled over (through the end of May).5) The Fed ceases to buy mortgage securities on Wednesday and this is happening at a time when mortgage rates have already climbed back above 5% and the housing market is showing signs of rolling over again. See Spike in Treasury Yields Jolts Mortgages on page C2 of today’s WSJ. There is also pressure from within the Fed (Plosser the latest) to soon begin to sell securities outright. One thing that is very likely on its way again is another 50bps hike on the discount rate — has anyone noticed the TED spread beginning to widen ahead of this? The banks, going forward, will not have easy access to the window and will have to rely on each other for funding.6) April 15 looms as a critical day from a geopolitical standpoint. It is the day that the Treasury Department will issue its report concluding whether or not China is a currency manipulator. If it is viewed as such then trade sanctions are likely to ensue and very likely some bilateral tensions. This could be very good news for the bullion market (as well as the Bloomberg News report today stating that gold imports in India are surging right now — up six-fold from a year ago — as there are an expected 1 million marriages planned for April and May).7) Speaking of geopolitical risks, President Obama has allowed U.S. relations with Israel to deteriorate to such an extent, and is handling the Iran nuclear situation with such a kid-gloves approach, that disturbing columns like this are now popping up in newspapers like the NYT, the National Post, and the WSJ. Even the prospect is enough to underpin the energy stocks, which are currently priced for $69/bbl on WTI.

Tuesday, March 30, 2010

Expatriation Explosion,Bureaucrats fight to slow it down…By Mark NestmannAs I've mentioned in previous blog entries, many Americans are seriously considering giving up their U.S. citizenship and passport. (Click here to learn why). My firm has experienced a big surge in clients considering expatriation, and other professionals I've spoken to tell me they're also handling a record number of expatriations.The fact that the Department of State recently imposed a $450 fee for expatriation also may signify that the consular offices of U.S. embassies that handle expatriations are increasingly overburdened. Now, I've learned of another development that indicates the numbers of expatriates are exploding: increased delays in obtaining a document called a "certificate of loss of nationality," or CLN.Before I explain what a CLN is and why you need it, let's review the steps you must take if you're a U.S. citizen and wish to expatriate:~Acquire citizenship and a passport from another country, if you don't already have a second nationality.~Decide where you want to live after giving up your U.S. citizenship. This may be in the country that issued your passport, or another country. If it's another country, you'll probably need to apply for a residence permit there.~Make a personal appearance at a U.S. consulate and complete some forms indicating that you understand the consequences of expatriation. (At some consulates, there's a waiting period of up to a year for an appointment.)

Once you've signed these documents at the consulate, you're no longer a U.S. citizen for tax purposes. Most importantly, with a couple important exceptions for certain "covered expatriates," you have no additional tax obligations with reference to non-U.S. income AFTER that date. But to confirm your non-citizen status, you must receive back from the State Department a CLN.A CLN serves two purposes. Without it, your loss of U.S. nationality isn't legally binding. That means if for some reason the State Department doesn't approve it, the IRS wouldn't view you as a non-U.S. citizen. Secondly, once you receive your CLN, you can apply for permission to re-enter the United States. But in the interval between your consular appearance and the time you receive your CLN, you can't legally re-enter the United States. You're in sort of a no-man's-land; no longer a U.S. citizen, but not quite a non-citizen, either.But once you receive the CLN, you're officially separated from the IRS. And, you can use it to apply for a visa in your new passport to re-enter the United States. Or, if you have a passport from a visa-waiver country, to prove your non-U.S. status.Because the CLN is so important, it was disturbing for me to learn recently that an increasing number of expatriates are experiencing delays in receiving this official notification. Until now, I advised clients they could generally expect their CLNs back from the State Department in three months or less. But I have now received a copy of correspondence from a U.S. consulate indicating three months is not a "standard" interval in which to expect a CLN. (It has been in our experience, although in one case, it took a client nearly a year to obtain a CLN.) According to this communication, the State Department has reduced staffing in Washington, D.C. (where all CLNs are issued) to deal with humanitarian concerns in Haiti, Chile and other countries that have experienced natural disasters.I suspect the reason why State Department personnel have been redeployed to these countries is to process emergency applications for admission to the United States as refugees, for hospitalization, etc. Hopefully, the delay is temporary. But it does underscore that those U.S. citizens seeking to expatriate may have a lengthy wait for a CLN.

Sell-off in US Treasuries raises sovereign debt fearsInvestors are braced for a further sell-off in US Treasuries after dramatic moves last week raised fears that the surfeit of US government debt is starting to saturate bond markets.

The yield on 10-year Treasuries – the benchmark price of global capital – surged 30 basis points in just two days last week to over 3.9pc, the highest level since the Lehman crisis. Alan Greenspan, ex-head of the US Federal Reserve, said the abrupt move may be "the canary in the coal mine", a warning to Washington that it can no longer borrow with impunity. He said there is a "huge overhang of federal debt, which we have never seen before".David Rosenberg at Gluskin Sheff said Treasury yields have ratcheted up 90 basis points since December in a "destabilising fashion", for the wrong reasons. Growth has not been strong enough to revive fears of inflation. Commodity prices peaked in January and US home sales have fallen for the last three months, pointing to a double-dip in the housing market.

Mr Rosenberg said the yield spike recalls the move in the spring of 2007 just as the credit system started to unravel. "The question is how the equity market is going to handle this back-up in rates," he said.The trigger for last week's sell-off was poor demand at Treasury auctions, linked to the passage of the Obama health care reform. Critics say it will add $1 trillion (£670bn) to America's debt over the next decade, a claim disputed fiercely by Democrats.It is unclear whether China is selling US Treasuries after cutting its holdings for three months in a row, or what its motive may be. There are concerns that Beijing may be sending a coded message before the US Treasury rules next month on whether China is a "currency manipulator", though experts say China is clearly still buying dollar assets because it is holding down the yuan against the greenback. Some investors may be selling Treasuries as a precaution against a trade spat.Looming over everything is the worry that markets will not be able to absorb the glut of US debt as the Fed winds down its policy of bond purchases, starting with an exit from mortgage-backed securities. It currently holds a quarter of the $5 trillion of the MBS market.The rise in US bond yields has set off mayhem in the 10-year US swaps markets. Spreads turned negative last week, touching the lowest level in 20 years. The effect was to drive credit costs for high-grade companies such as Berkshire Hathaway below that of the US government. This may have been a technical aberration.

The RentenDollar: A conspiracy theory OR Please tell me where I’m wrong.Posted on March 29, 2010 by correia45Late last night I came up with my very own conspiracy theory. It seemed a little odd at the time, but as I’ve continued to think it over, I’ve not yet been able to poke any significant holes in it. Of course, it is the kind of thing that an accountant turned science fiction author would come up with.Basically, I’m starting to think that certain factions within our government actively want hyperinflation to occur as a surefire method of instituting de-facto communism in America…Crazy, right? I know, you’re thinking that surely Correia has gone off the deep end and spouting off all sorts of doomsday nonsense, but hear me out first.As many of you know, I’m a history geek. Last year I wrote my first alternative history novel set in 1932. Because I’m a stickler for authenticity, I did an absurd amount of research. I read every book I could get my hands on about what is normally called the interwar period. I mostly concentrated on American history/culture but I also learned a bit about the Weimar Republic.The interesting factoids about the Weimar Republic that most of us remember is that it was the home of hyperinflation (remember the wheelbarrow full of money to buy a loaf of bread) and eventually it also gave us one of history’s greatest scumbags, Hitler. Other than that, most Americans don’t really know much about the Weimar Republic.Okay, but where did the hyperinflation come from? I’m going to greatly simplify this because A. I’m a writer and accountant, not a historian, go to Wikipedia and B. This is only for a background to draw a comparison to what we’re doing right now.The Weimar Republic (If I recall correctly, they actually called themselves the Deutsch Reich) came about after WWI. The German Empire had fallen apart, leadership fled, and for the next couple of years there were several battles fought between different factions of communists, socialists, and conservatives. (and when I say conservative it isn’t what it means here and now. I mean conservative back toward the empire, royalty, and all that entails). These were not polite political discussions. These were a series of violent mini-revolts where various cities would go off and declare themselves independent, like the Soviet State of Munich. Then a bunch of communists and the “Freikorps” would clash in the streets, then repeat a week later in a different city. It was bad.Eventually the Weimar Republic was formed from the different groups, and immediately it had a whole new set of problems. The Germans signed the treaty of Versailles, they gave up a bunch of territory, and even worse, then took on a massive war debt and an agreement to basically pay the allies for the biggest war in history.So what does a government, which is already sitting on a very damaged economy, do in order to pay this debt? They printed more money. Sounding familiar yet?It got worse. As the Weimar printed more money, their government got more bloated, and ate up even more of their resources. (at one point a chancellor laid off several hundred thousand government employees to try and make ends meet). As their money inflated and became more useless, France got tired of not getting paid, and being jerks, invaded and took over the Ruhr, which was one of the most productive regions in Germany. This caused a drop in production, and then everybody else went on strike.Meanwhile, the money kept inflating to levels that people couldn’t even understand. Back during the war, the Mark was something like 4 to 1 against the dollar. By the time they hit hyperinflation, they’d gone to millions to 1, and by the end, it was literally trillions to a single dollar. They would print new bills, and a few days later all they were good for was note paper. This is where the stories about the wheelbarrow full of money for bread comes from. To put this in perspective, this would be like you filling the trunk of your car with twenty dollar bills and then using all those trash bags full of money to buy some shoelaces and a tube of toothpaste.So basically Germany was totally screwed.So how did they get out of it? Contrary to what most Americans think, it wasn’t Hitler that came along and fixed Germany’s economic problems and turned them into an industrial powerhouse war machine through the sheer power of him being a complete ass. There was actually a time period in the thirties that the Weimer knew as the Golden Years, because they’d finally gotten much of their economy back under control.They rebooted their currency. If I recall correctly, their new currency was called the Rentenmark. They introduced the Rentenmark, and you could trade in your trillions of crappy marks for one of them. It went back to 4-1 with the dollar. Now here’s the thing. You can’t just change the name and have new currency. Your currency has to actually be based on something. (kind of like how the dollar is based on good feelings and rainbows).They based it on land. It was the one asset that the government could go and take over to use as a base asset, and land is always valuable because they aren’t making any more of it. Congratulations land owners, all your dirt belongs to us, but people were so desperate (and tired of carrying buckets of silly money around) that it didn’t matter. They were desperate, and desperate times called for desperate (and sometimes stupid) measures. Using the new asset-backed Rentenmarks, Germany was able to start paying their debts again and get on with a semblance of normalcy, well at least until they elected a bunch of lunatics in snazzy uniforms.So why this long story? Because it is to compare with what we’re doing ourselves. Right now the United States is on the path to hyperinflation. CBO is predicting that by 2020, our debt will be 90% of our GDP. (EDIT: As was pointed out in the comments, my information there was wrong. We’ll hit 90% way way earlier than that, so it is even worse) Think about that for a second. That would be like if you had a $50,000 a year job, but you owed vicious thumb-breaking loan sharks $45,000 that was still collecting interest. Our entitlements are bankrupting us. Even before Health Control (because if you believe the government is going to spend a trillion bucks and cut the deficit, you must sleep in a helmet) we’re only a few years from all our tax dollars only being able to pay for Medicare, Social Security, and interest on our debt. That’s it.Now, what happens when you as an individual can’t pay your debts or pay your bills on time? Your credit rating goes down. And when your credit rating goes down, you can no longer get that low interest Visa-Black-Platinum-Playboy card (with Sky Miles!) you can now only get the Soup-Kitchen-Discover card at 280% interest. Many people don’t realize it, but governments have credit ratings too. Right now we’ve got a great one, based on ‘because we’re so awesome’. But we’re getting really close to losing our good credit rating, (because awesome will only get you so far before you actually have to pay the bills) when that happens, all of those already really bad estimates about our future debt are going to get far worse. How much worse? Have you ever played Fallout 3 on the Xbox? Kind of like that.So while we’re on our way to Thunder Dome, the government is printing dollars like crazy, faster than ever before, with no signs of letting up. Inflation is coming. When the credit rating tanks and the entitlements get worse (or the oil currency switches to something else) hello, Master Blaster! We’re in deep trouble. We’re looking at hyperinflation. Dollars worth nothing, burning them to keep warm would be more efficient, kind of thing.Yet the government, that surely has some smart people in it, continues to increase our spending, increase our debt load, and do things that are the exact opposite of fiscally responsible. It is almost as if they want the system to collapse…Then I remember the Weimar Republic. They had hyperinflation. How did they get out of it? By rebooting the currency. What was the new currency based on? Land. Land is an asset.The government is gobbling up land out west like crazy. Every time we discover a deposit of oil or coal out here, the government immediately discovers a snail or a flower on it that might be endangered and grabs a couple hundred thousand more acres. The government is trying to kick 18,000 people out of their homes in Colorado to put in a new “tank range”.But that wouldn’t be enough. Think beyond land. Think assets.Fanny May and Freddy Mac now hold something like 50% of the mortgages in the US. The government has recently either directly taken over, or regulated the living crap out of our auto industry, insurance industry, banking and finance industry, and now health care…The people of the Weimar were so desperate, that they would do anything to get out of their economic crisis.Let’s imagine a hypothetical situation here. Let’s say that in a decade or so, our currency has collapsed. We owe far more than we produce. Companies are failing. Because all of our tax dollars are used just to pay for our debt, taxes have to be raised, which causes even more unemployment and decreased production. Entitlements can’t be met. The current economic crisis looks awesome in comparison, but there is no possible way out, because our money is now worthless.So… Reboot the currency. Make a new RentenDollar.The media can even point out what a fantastic idea this is because historically, it has worked before! The politicians will tell us that this is the only way and we must act quickly! People are desperate and will be told that “the private system has failed! Only government intervention can save us now!” (gee, why does that sound soooo familiar?)Sure, they caused the problem, but that isn’t what most people will think, but as they’ve shown, they don’t really care what we think anyway. They will not let a good crisis go to waste. There is only one teensy downside to this reboot though…See, the RentenDollar can’t be based on good feelings like the old dollar, it must be based on ASSETS. And since the capitalist system has failed, and the government has already got its fingers in all these various companies, instead of just regulating these companies, why shouldn’t the government just own them?All those mortgages? They now belong to the government. Banks? Belong to the government. Industrial production? Government. Medical. Government. They’re assets, and they’re necessary to back our new currency.You don’t like it? People are starving. There are riots in the streets. Cities are burning. We have to act now! Won’t somebody think of the children! There’s no time to read this 9,000 page bill! HURRY!…And just like that, America has become a communist country. State control and ownership of everything.So, let’s poke some holes in my late night theory. Please, somebody tell me how this is impossible. Maybe we’re not heading for an economic collapse. Maybe we’re not going to have hyperinflation. If anybody has any evidence of that, I’d love to hear it, because this is kind of depressing.Or, the other way that this idea could be silly and implausible is if there was no possible way that elements within our government would want to exercise total control over our lives… Yeah… that’s just absurd.Ask yourself this one question. Do you believe that our current federal government, if presented with the opportunity, would take over and control everything? Yes or No.Help me out here, guys. I’m not getting any warm feelings from this.

Operators reduced exposure to fragile liner shipping markets, says AlphalinerA number of Asian carriers significantly trimmed the number of containerships they own over the last 15 months as they sought to reduce exposure to the fragile liner shipping markets, according to Alphaliner.The seven major Asian operators surveyed by Alphaliner disposed of ships with capacity of 282,000 20-foot equivalent units during the period, representing 16 percent of their combined fleet. This includes 155,000 TEUs capacity that these carriers sold for scrap and another 127,000 TEUs capacity that was sold in the second-hand market and in financial engineering deals.The Asian carriers were not the only carriers that trimmed their fleets. Among other major lines, CMA CGM, Mediterranean Shipping Company and Maersk Line have also taken steps to dispose of parts of their fleets, Alphaliner said. But the disposal of ships by CMA CGM and MSC were offset by the delivery of new ships and new charter hires.For most of the Asian carriers, however, the disposals were not offset by the delivery of new ships or through charters, which resulted in a loss of market share. Also as a percentage of the total owned fleet, the Asian carriers’ disposals are significantly higher.In particular, the moves by the three Japanese carriers, NYK Line, MOL and “K” Line, to reduce their exposure to the liner trade, mark a longer-term shift in these carriers’ corporate strategies to downgrade the container shipping business segments. Within the last few months, NYK and “K” Line (as well as Japanese owners related to “K” Line) sold nine over-Panamax containerships built between 1997 and 2002 of between 5,500 and 6,150 TEUs. The sales were conducted privately, at prices that were largely regarded as very attractive to the buyers.The ships obtained strong charter backing immediately upon their sale.In addition, MOL has been active in disposing a large part of its fleet including sending a quarter of its owned vessels for scrap over the last 15 months. The 15 MOL ships demolished, a total of 44,500 TEUs removed, were among some of the youngest ships sent for scrap last year, at an average age of 21 years. These moves have seen all three of the Japanese carriers drop in the carrier rankings, with no Japanese carrier currently represented in the top 10, a situation that is unprecedented since the Japanese carriers entered the container shipping markets in the ‘70s.Another Asian carrier that has seen a drop in market share is Evergreen, which fell out of the top 4 rankings this month, the first time it is not in the top 4 carrier rank since the 1980s. Evergreen has shed 34,000 TEUs of its owned capacity during the last year, including nine of its G/GX class ships (excluding seven more that were sold on leaseback deals earlier) built between 1983 and 1988. Evergreen remains the sole major carrier with no new ships on order on its books and has so far refrained from making moves to rebuild its fleet.Hanjin Shipping was the carrier that had the largest shift in its owned fleet. It sold 13 container ships of between 4,000 and 5,300 TEUs in June of last year. This was part of a 16-vessel deal (including 3 bulk carriers) concluded with Korea Asset Management Corp., which paid around $383 million for 17 vessels, including one bulk carrier from Hyundai Merchant Marine, which were chartered back to the sellers for five to 10 years. Hanjin’s sale represented 39 percent of its owned containerships as the company struggles with a strained balance sheet with a debt-to-equity ratio of over 220 percent at the end of 2009.

"Ours was the first revolution in the history of mankind that truly reversed the course of government, and with three little words: 'We the People.' 'We the People' tell the government what to do; it doesn't tell us. 'We the People' are the driver; the government is the car, and we decide where it should go, and by what route, and how fast. Almost all the world's constitutions are documents in which governments tell the people what their privileges are. Our Constitution is a document in which 'We the People' tell the government what it is allowed to do. 'We the People' are free." - Ronald Reagan, Presidential Farewell Speech, Jan. 11th, 1989

It’s Not Just Neocon Stupidity AnymoreMore than seven years ago – what seems to be an eternity now – Charles Krauthammer spoke to a Hillsdale College gathering which was celebrating the “success” of the U.S. war in Afghanistan and was about to celebrate the “success” of the U.S. invasion of Iraq. I read the speech after it came out and then had real concerns, but little did I know those concerns would be mild compared to the reality that has become the United States of America today. Like so many other government programs, wars in which a stronger army invades a weaker country bring the “good effects” first, and only later do we see the “bad effects.” One recalls the German invasion of Poland in 1939, the Nazi express on the Western Front in the spring of 1940, and the early successes of the German invasion of the U.S.S.R. in 1941. One does not have to search far to see what was happening to the Wehrmacht in 1945 to gauge the “success” of the German retreat.(Not-so-ironically, “Wehrmacht” originally meant “home defense” forces, just as it is ironic that the U.S. Department of War became the U.S. Department of Defense after World War II, and the number of U.S. “defense” excursions overseas, not to mention military bases overseas, has multiplied into something perverse that cannot economically be sustained.)

Thus, it was in that heady, self-congratulatory atmosphere in which the Neoconservatives were claiming “victory,” and they greatly applauded Krauthammer’s speech. Instead of offering critiques, I will include portions of that speech and let Krauthammer’s words speak for him:At the end of the Cold War, the conventional wisdom was that with the demise of the Soviet Empire, the bipolarity of the second half of the 20th century would yield to a multi-polar world. You might recall the school of thought led by historian Paul Kennedy, who said that America was already in decline, suffering from imperial overstretch. There was also the Asian enthusiasm, popularized by James Fallows and others, whose thinking was best captured by the late-1980s witticism: “The United States and Russia decided to hold a Cold War. Who won? Japan.”

Well, they were wrong, and ironically no one has put it better than Paul Kennedy himself, in a classic recantation emphasizing America’s power: “Nothing has ever existed like this disparity of power, nothing. Charlemagne’s empire was merely Western European in its reach. The Roman Empire stretched farther afield, but there was another great empire in Persia and a larger one in China. There is, therefore, no comparison.”He continues:We tend not to see or understand the historical uniqueness of this situation. Even at its height, Britain could always be seriously challenged by the next greatest powers. It had a smaller army than the land powers of Europe, and its navy was equaled by the next two navies combined. Today, the American military exceeds in spending the next twenty countries combined. Its Navy, Air Force and space power are unrivaled. Its dominance extends as well to every other aspect of international life―not only military, but economic, technological, diplomatic, cultural, even linguistic, with a myriad of countries trying to fend off the inexorable march of MTV English.And continues:…September 11 demonstrated a new kind of American strength. The center of our economy was struck, aviation was shut down, the government was sent underground and the country was rendered paralyzed and fearful. Yet within days, the markets reopened, the economy began its recovery, the president mobilized the nation and a unified Congress immediately underwrote a huge worldwide war on terror. The Pentagon, with its demolished western facade still smoldering, began planning the war. The illusion of America’s invulnerability was shattered, but with the demonstration of its recuperative powers, that sense of invulnerability assumed a new character. It was transmuted from impermeability to resilience―the product of unrivaled human, technological and political reserves. But, he saves the best for later: “So we bestride the world like a colossus.”

And so it is that more than seven years later, the U.S. economy is in freefall, and the current government – elected in large part because of the recklessness of the Bush administration that Krauthammer so praises – is placing huge financial burdens upon the economy that it cannot support. The wars continue in Afghanistan and Iraq, except they no longer are wars of invasion but, instead, are wars of occupation, and no matter how ruthless the occupier might be, in the long run a war of occupation cannot be victorious for those people who don’t belong there. Krauthammer’s praise of U.S. “unilateralism,” which is a nice term for “bullying,” was popular that night with his audience. It was full of people who believed that “American exceptionalism” means the use of military power wherever the government damn well believes it can – and should – be used. It means floating bonds around the world and expecting the rest of the world to pick up our spending tab. Ultimately, it means bankruptcy and humiliating defeat. True, publications like The Nation can claim that as long as our government printing presses remain operational, the USA never will go bankrupt because it can pay its creditors with paper – if it chooses to pay them at all. Paul Krugman claims that we can play “beggar-they-neighbor” against China and the only consequences will be felt by the Chinese.In other words, it no longer is just the Neocons being arrogant and aggressive. The “torch” of political power has passed from the Republicans to the Democrats, but the arrogance and delusion of Washington, D.C., continues. Perhaps it is fitting that Krauthammer gave his speech to a Hillsdale College gathering, but the meeting was held in D.C.Krauthammer declared that all the USA had to do was to demonstrate its “power” and the rest of the world would quake and humbly follow in obedience. Republicans – and later Democrats – have followed his not-so-sage advice and we see what lies before us: financial ruin and poverty. Just as there really was no “Argentine exceptionalism” of the 20th Century, as that once-great country inflated itself into poverty and ruin, so will be the reality of the Neocons’ “American exceptionalism” unless Americans come to realize that our present path of war abroad and reckless spending at home will destroy all of us.

Monday, March 29, 2010

Capitulation: Biggest Weekly Spike In S&P Large Contracts On The CFTC In History - $19 Billion In Index Shorts CoveredSubmitted by Tyler Durden on 03/28/2010 21:34 -0500This is what capitulation looks like:The chart above is an indication of the net speculative contracts on the CFTC as disclosed by the weekly COT report. In particular, this tracks the S&P Large contracts (x 250). Last week saw the single biggest weekly short cover in the history of this data set, indicating one of several things: 1) some large fund(s) capitulated and covered a major short position, 2) the ongoing forced short buy-ins by the State Streets of the world have finally yielded results, 3) someone is positioning for a massive move higher in the market by going net short to neutral. The net weekly change in contracts of 66,043 is a record, and involves a staggering amount of capital: the money involved is 1,150x250x66,000 or roughly $19 billion. A weekly move of this magnitude was only ever seen once before, on March 24, 2009, when the government had to cement the bottom of the market following the 666 low. As the Large uses Open Outcry, it explains why we were getting numerous emails from pit traders indicating that Goldman was buying up billions worth of S&P Large.We let readers make up their own minds as to whether last week's record short covering surge is a cause to the recent melt up in the market, or an effect to an imminent spike in the S&P.

Obama Sets Sights on Merging Mexico and US?Monday, March 29, 2010 -After more than a year of campaigning, President Obama finally won much-needed and long-overdue changes to our health care system. Achieving what four other presidents could not, Obama broke through the political impasse to obtain health care coverage for the vast majority of uninsured Americans. The president now needs to take this mandate and act quickly on what should be the next major item on his domestic agenda: modernizing our immigration system. Comprehensive immigration reform requires a balanced and measured approach that includes a broad legalization component, a foreign policy that promotes meaningful and equitable economic development in the region, and humane enforcement measures that strengthen, rather than divide, local communities. Any comprehensive immigration reform bill thus must hold as its centerpiece a fair and practicable legalization plan that recognizes and respects the diversity of our communities. The clearest option would be granting undocumented immigrants, including LGBT domestic partners, broad access to permanent resident status so they could work and travel freely. It is only when we remove the fear of deportation that we truly remove the burden of second-class citizenship. While the word "amnesty" is politically unpopular in some circles, its true meaning is reprieve or absolution. Amnesty does not mean a free ride, as people must still pay fines, wait their turn in line and comply with whatever new rules are developed. – SFGate.comDominant Social Theme: Painting the canvas of future greatness. The great uniters will unite all.Free-Market Analysis: This article is the story of a canvas now being painted. It may even end up with a portrait of an international couple being married. But it is not a pretty picture by any means. Investors with holdings in the United States – dollars, bonds and stocks – will have to beware of what is coming. Some of the largest markets in the world could be further destabilized in the near or fairly-near future.The problems have to do with the Obama administration's focus on upcoming legislation. While financial reform is an interesting topic, US President Barack Obama and those behind his administration are aiming, in our estimation, at a bigger prize - immigration reform. They seem to want to introduce such legislation soon, and while it may not go anywhere after a divisive health care debate, we think that it will come back again and again, as it is important to a larger agenda. This article will concentrate on immigration reform and its eventual ramifications, financial and otherwise.To start, one has to grant continuity between this administration and the last (a Republican one) and grant also that each party is a continuation of the other. The players behind the scenes are a power elite that continually seeks further consolidation and concentration of wealth (in its hands) at the expense of the middle class and other influential factions of a participatory democracy.If one does grant this, the picture steadily reveals itself, even if it is not finished. What one sees, however, if one looks hard, is a potential finished work that will be one of amazing trickery and false perceptions. Yet, it is not a new effort. In fact, it's been going on for decades, but the health care bill was doubtless a major advance. Here's a Fox News story that reveals more of the big picture:Immigration Reform Could KO Health Care ... While Congress voted to overhaul U.S. health care and provide universal coverage, 15 percent of America's uninsured population remains uncovered and unaddressed: illegal immigrants. Democrats are expected to introduce comprehensive immigration reform legislation this spring, and when they do, health care costs will once again be front and center. Under the new law just passed, illegal immigrants are not entitled to health care. That means undocumented workers will continue to get care the way they always have, showing up at county clinics and hospitals for emergency treatment. According to cost estimates submitted by various states, that costs taxpayers and ratepayers about $4.3 billion a year.However, according to the conservative-leaning Center for Immigration Studies, that number would spike from $10 billion to $30 billion annually under immigration reform. ... But cost isn't the only issue. Enrolling illegal immigrants into the new system will improve health outcomes. Dr. Steven Wallace of the UCLA Center for Health Policy Research says including undocumented workers in the health care overhaul makes sense. "In the long term, the point is to make sure all Americans who are living here and working here have access to health care," he says. "It is simpler and therefore more efficient if you simply say, everybody who works gets health insurance. Everybody who has a low income, we will help you and we move forward. People don't come to the U.S. for health care, they come to work."Now, please follow us. It's not really hard to see completion. The general thrust of the new legislation is that all Americans must be insured under the new health care plan or pay a fine. There are various ways that Americans can gain health care, and various subsidies as well. Bottom line, with Americans paying more and more for health care, there will be increased pressure to rein in illegal aliens and to make sure that immigrants not in the US legally are not taking advantage of US health care.And this is impossible.And because enforcement is – and will be – impossible, the alternative will eventually make its way to the fore. Yes, you've figured it out. There will be pressure to make illegal immigrants "legal" via some sort of guest worker or citizenship program. Of course, one might think that such predictions are a leap of faith – and that perhaps the illegal immigration from Mexico may become less of an issue over time. But ... really? It's been going on for decades. And finally, it's destabilizing a whole country, and sending even more Mexicans across the border. Here's a letter that appeared in the Wall Street Journal on the subject recently:Mary O'Grady's March 22 Americas column "The War on Drugs Is Doomed" is one of the best pieces ever written on the connection between U.S. drug policy and drug violence in Mexico. I just hope it can inform public policy discussions. I am on the City Council of El Paso, Texas, across the border from Ciudad Juarez, where more than 5,000 people have been killed since President Calderón was elected. We are living the drug war, and it has been disastrous for our community. In addition to bearing witness to the horrific killings of men, women and children in our sister city, it has become very clear to us that the failure of Juarez portends the failure of El Paso.Juarenses spend more than $1.4 billion in our economy every year; more than $51 billion in U.S./Mexico trade passes through El Paso/Juarez ports of entry annually (almost 20% of trade between the two countries); Juarez economic activity is responsible for 60,000 jobs in El Paso; and, as you might imagine, family, business and other relationships extend over the border and are the basis of much of the economic and cultural success that we enjoy.It is clearly in our interest to find a solution to this drug violence, and it is clear that central to that solution is acknowledging the role of drug consumption and drug prohibition in the U.S. Ms. O'Grady has done an outstanding job through her columns in educating the public on the connection between drug consumption, drug prohibition and drug violence. Communities like ours are dependent on a better understanding and eventual action by our national elected leaders.The article by Mary O'Grady merely pointed out that the huge demand for drugs in the United States, combined with the perpetual war on supply was providing a logical outcome – higher prices and involvement by the most violent types in society since criminal activity of this sort attracts and begets violence.In fact, we can see how the composition unfolds – Mexicans are being harried out of their country by American drug policies. And now a health care plan has been put into effect that will inevitably add to the attractiveness of America for Mexicans who want to work in a more prosperous and less violent environment.The pressure to extend health care privileges to Mexicans and others in America illegally will grow inexorably. And it will be used as a lever to pry apart the opposition to a de-facto merger between the two countries. Again, this is no surprise. The Bush administration gave this sort of effort a push toward the end of the George Bush's last term. The administration wanted a kind of amnesty and other legal affirmations that would essentially have provided guest worker status to Mexicans - and begun the process as well (in earnest) of harmonizing American and Mexican laws.One may choose to disbelieve all this of course. Perhaps it is impossible that Mexicans would EVER consent to such a union – so deep does the antipathy run. (Nonetheless, Bush worked on some secret and surprising treaties in his day – reported after the fact - that included both Canada and Mexico.) But, heck, it is a far-our idea, and perhaps there is no elite plan to merge Mexico, Canada and the United States, only paranoia and delusions.And yet ... in addition to extant treaties drawing the three countries ever close, such a plan has been documented on the Internet in the 2000s by numerous alternative blog sites and news organizations. The idea, according to these reports, is to divide the world into currency blocs to make currencies more easily manipulated and central banks even more powerful. The EU is already one such bloc and Canada, Mexico and the United States are supposedly to be the foundation of another.When one looks at the legislation that the Obama administration has in mind, it is obvious that a tighter bond is being created between Mexicans and Americans. The wedding has not been formally announced (and perhaps won't be for decades) but the union is becoming more realistic.The health care bill itself, if read closely, seems to give the federal government fairly substantial additional powers, including massive IRS oversight. But more than that, the bill will probably drive many more Americans, and American businesses, into bankruptcy, further exacerbating America's financial dilemmas. Over time, then, the "immigration reform" would be proposed as a panacea and a closer union with Mexico (and then eventually Canada might also be proposed) as a means for America to detach itself from looming financial calamity and endless and increased misery.

It's Official - America Now Enforces Capital Controls03/28/2010 14:27 -0500It couldn't have happened to a nicer country. On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration's millionaire cronies to abbreviate as HIRE. As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions - Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation's domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It's the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose - the law now says so. Capital Controls are now here and are now fully enforced by the law.Let's parse through the just passed law, which has been mentioned by exactly zero mainstream media outlets.Here is the default new state of capital outflows:(a) IN GENERAL.—The Internal Revenue Code of 1986 is amended by inserting after chapter 3 the following new chapter:‘‘CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS‘‘Sec. 1471. Withholdable payments to foreign financial institutions.‘‘Sec. 1472. Withholdable payments to other foreign entities.‘‘Sec. 1473. Definitions.‘‘Sec. 1474. Special rules.‘‘SEC. 1471. WITHHOLDABLE PAYMENTS TO FOREIGN FINANCIAL INSTITUTIONS.‘‘(a) IN GENERAL.—In the case of any withholdable payment to a foreign financial institution which does not meet the requirements of subsection (b), the withholding agent with respect to such payment shall deduct and withhold from such payment a tax equal to 30 percent of the amount of such payment.Clarifying who this law applies to:‘‘(C) in the case of any United States account maintained by such institution, to report on an annual basis the information described in subsection (c) with respect to such account,‘‘(D) to deduct and withhold a tax equal to 30 percent of—‘‘(i) any passthru payment which is made by such institution to a recalcitrant account holder or another foreign financial institution which does not meet the requirements of this subsection, and‘‘(ii) in the case of any passthru payment which is made by such institution to a foreign financial institution which has in effect an election under paragraph (3) with respect to such payment, so much of such payment as is allocable to accounts held by recalcitrant account holders or foreign financial institutions which do not meet the requirements of this subsection.What happens if this brand new law impinges and/or is in blatant contradiction with existing foreign laws?‘‘(F) in any case in which any foreign law would (but for a waiver described in clause (i)) prevent the reporting of any information referred to in this subsection or subsection (c) with respect to any United States account maintained by such institution—‘‘(i) to attempt to obtain a valid and effective waiver of such law from each holder of such account, and‘‘(ii) if a waiver described in clause (i) is not obtained from each such holder within a reasonable period of time, to close such account.Not only are capital flows now to be overseen and controlled by the government and the IRS, but holders of foreign accounts can kiss any semblance of privacy goodbye:‘‘(c) INFORMATION REQUIRED TO BE REPORTED ON UNITED STATES ACCOUNTS.—‘‘(1) IN GENERAL.—The agreement described in subsection (b) shall require the foreign financial institution to report the following with respect to each United States account maintained by such institution:‘‘(A) The name, address, and TIN of each account holder which is a specified United States person and, in the case of any account holder which is a United States owned foreign entity, the name, address, and TIN of each substantial United States owner of such entity.‘‘(B) The account number.‘‘(C) The account balance or value (determined at such time and in such manner as the Secretary may provide).‘‘(D) Except to the extent provided by the Secretary, the gross receipts and gross withdrawals or payments from the account (determined for such period and in such manner as the Secretary may provide).The only exemption to the rule? If you hold the meager sum of $50,000 or less in foreign accounts.‘‘(B) EXCEPTION FOR CERTAIN ACCOUNTS HELD BY INDIVIDUALS.—Unless the foreign financial institution elects to not have this subparagraph apply, such term shall not include any depository account maintained by such financial institution if—‘‘(i) each holder of such account is a natural person,and‘‘(ii) with respect to each holder of such account, the aggregate value of all depository accounts held (in whole or in part) by such holder and maintained by the same financial institution which maintains such account does not exceed $50,000.And, while we are on the topic of definitions, here is how "financial account" is defined by the US:‘‘(2) FINANCIAL ACCOUNT.—Except as otherwise provided by the Secretary, the term ‘financial account’ means, with respect to any financial institution—‘‘(A) any depository account maintained by such financial institution,‘‘(B) any custodial account maintained by such financial institution, and‘‘(C) any equity or debt interest in such financial institution (other than interests which are regularly traded on an established securities market). Any equity or debt interest which constitutes a financial account under subparagraph (C) with respect to any financial institution shall be treated for purposes of this section as maintained by such financial institution.In case you find you do not like to be subject to capital controls, you are now deemed a "Recalcitrant Account Holder."‘‘(6) RECALCITRANT ACCOUNT HOLDER.—The term ‘recalcitrant account holder’ means any account holder which—‘‘(A) fails to comply with reasonable requests for the information referred to in subsection (b)(1)(A) or (c)(1)(A),or ‘‘(B) fails to provide a waiver described in subsection (b)(1)(F) upon request.But guess what - if you are a foreign Central Bank, or if the Secretary determined that you are "a low risk for tax evasion" (unlike the Secretary himself) you still can do whatever the hell you want:‘‘(f) EXCEPTION FOR CERTAIN PAYMENTS.—Subsection (a) shall not apply to any payment to the extent that the beneficial ownerof such payment is—‘‘(1) any foreign government, any political subdivision of a foreign government, or any wholly owned agency or instrumentality of any one or more of the foregoing, ‘‘(2) any international organization or any wholly owned agency or instrumentality thereof,‘‘(3) any foreign central bank of issue, or‘‘(4) any other class of persons identified by the Secretary for purposes of this subsection as posing a low risk of tax evasion.One thing we are confused about is whether this law is a preamble, or already incorporates, the flow of non-cash assets, such as commodities, and, thus, gold. If an account transfers, via physical or paper delivery, gold from a domestic account to a foreign one, we are not sure if the language deems this a 30% taxable transaction, although preliminary discussions with lawyers indicates this is likely the case.And so the noose on capital mobility tightens, as very soon the only option US citizens have when it comes to investing their money, will be in government mandated retirement annuities, which will likely be the next step in the capital control escalation, which will culminate with every single free dollar required to be reinvested into the US, likely in the form of purchasing US Treasury emissions such as Treasuries, TIPS and other worthless pieces of paper.Congratulations bankrupt America - you are now one step closer to a thoroughly non-free market.

Henry Lamb calls Obamacare most dramatic step for socialism in a generationPosted: March 27, 20101:00 am EasternBy Henry LambPeople who believe that health care is a right instead of a privilege embrace a fundamental principle of Marxism. This philosophy is built on the idea that workers are the source of productivity and must not be exploited by kings or capitalists; that workers must control their own destiny. This is the foundation of socialism. The Democrat Socialists of America admit that:We are not a separate party. Like our friends and allies in the feminist, labor, civil rights, religious and community-organizing movements, many of us have been active in the Democratic Party. We work with those movements to strengthen the party's left wing, represented by the Congressional Progressive Caucus.This belief system, articulated eloquently by Karl Marx and Friedrich Engels in their Communist Manifesto, envisions the perfect society to be one in which everyone shares equally in work and wealth, coordinated by a hierarchy of representatives chosen from the workers. The Democratic Party considers its leaders to be that hierarchy, empowered to do whatever it takes to redistribute society's wealth more equitably.

Despite the ridicule and denials that spew forth from the Democrats, the enactment of Obamacare is a victory for Marxism in the United States, recognized and publicly acknowledged by Al Sharpton. What Democrats have done is absolutely consistent with Marxism; the way it was done provides a course in this Marxist principle: The end justifies the means.Marxists, Socialists, Communists and Democrats have been trying for most of the century to advance a Marxist agenda. Woodrow Wilson implemented two major Marxist principles: the central bank and the income tax.Germany, in particular, and Europe in general, were much more successful in advancing a Marxist agenda, including universal health care. The influence of Marx and Engels, and other collectivists, was much greater in Europe than in the United States early in the 20th century.Franklin Roosevelt pushed the Marxist agenda quite hard and was partially successful. Social Security, enacted in 1935, was a major step. While the goal of creating a mechanism to ensure that senior citizens had retirement income was laudable, the Marxist notion that government could do it better than free enterprise condemned the program to constant shortfalls, ever-increasing taxes and eventual failure. How much better would it be now, if Congress in 1935 had chosen to simply allow the creation of individual retirement accounts in which untaxed principle and interest would be the property of the citizen for use after retirement?Roosevelt and the Democrats believed the time was right in 1943 to introduce the first real legislation to create a universal health-care system. A bill, known as the Wagner-Murray-Dingell Bill (H.R. 2861), launched a congressional debate that continued until the 1964 election of Lyndon Johnson. He brought an overwhelming majority of Democrats to Washington: 66 to 34 in the Senate and 295 to 140 in the House.Medicare and Medicaid were highlights of his "Great Society" in 1965. Originally, the plan cost each beneficiary $3 per month. In 2009, Medicare Part A cost 2.9 percent of payroll, and Part B cost $96.40 per month. This program, combined with Social Security shortfalls, faces unfunded liabilities totaling $106.8 trillion – that's TRILLION with a capital T. The Congressional Budget Office estimates that to meet this liability, the range of income-tax rates will have to increase from the current 10 to 35 percent, to 26 to 92 percent.Marxists, Socialists, Communists and Democrats are unfazed by this reality. They believe it is their moral duty to take whatever is necessary from the rich, to give to the poor whatever they consider to be a civil right. Like Marxists around the world, Democrats have always believed that universal health care is a right, not a privilege. Just as the cost of Social Security and Medicare and Medicaid have exploded way beyond the projections promised at the time of enactment, the real cost of Obamacare will make a mockery of the published estimates. Democrats couldn't care less because, like all Marxists, they believe in the second principle from the Communist Manifesto: that government should impose "a heavy progressive or graduated income tax" to pay the costs of their agenda.(Column continues below)The Marxist agenda being advanced by the current Washington majority will not stop with Obamacare. Another principle from the Manifesto is the "centralization of the means of communication and transportation in the hands of the state." The new push to create a federal ID card is the means toward controlling transportation, and Obama's choice for the FCC diversity czar, Mark Lloyd, is on the record supporting the Marxist principle of government-controlled communications.The first principle of the Communist Manifesto, the abolition of private property, has been high on the Democrats' priority list for most of the century. They continue to use tax dollars to buy private property when necessary, take it whenever possible, or control it through regulations when all else fails.Passage of Obamacare is the most dramatic step forward for the Marxist agenda in more than a generation. It must be undone. The U.S. Constitution does not authorize the federal government to force people to purchase insurance – unless the people allow it. The people must not allow it. This Marxist agenda must be stopped, and the only way to stop it is to remove the Marxist advocates from Congress and the White House.

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